US is still paying companies that defy its policy on Iran

By Jo Becker and Ron Nixon
New York Times / March 7, 2010

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NEW YORK - The federal government has awarded more than $107 billion in contract payments, grants, and loans over the past decade to foreign and multinational American companies while they were doing business in Iran, despite Washington’s efforts to discourage investment there, records show.

That includes nearly $15 billion in benefits paid to companies that defied American sanctions law by making large investments that helped Iran develop its vast oil and gas reserves.

For years, the United States has been pressing nations to join its efforts to squeeze the Iranian economy, in hopes of reining in Tehran’s nuclear ambitions. Now, with the nuclear standoff hardening and Iran rebuffing US diplomatic outreach, the Obama administration is trying to win a new round of UN sanctions.

But a New York Times analysis of federal records, company reports, and other documents shows that both the Obama and Bush administrations have sent mixed messages to the corporate world when it comes to doing business in Iran, rewarding companies whose interests conflict with US security goals.

More than two-thirds of the government money went to companies doing business in Iran’s energy industry - a huge source of revenue for the Iranian government and a stronghold of the Islamic Revolutionary Guards Corps, a focus of the Obama administration’s proposed sanctions because it oversees Iran’s nuclear and missile programs.

Other companies are involved in auto manufacturing and distribution, another important sector of the Iranian economy. One supplied container ship motors to a government-owned shipping line that was subsequently blacklisted by the United States for concealing arms shipments.

Beyond $102 billion in US government contract payments since 2000, the companies and their subsidiaries have reaped a variety of benefits. They include nearly $4.5 billion in loans and loan guarantees from the Export-Import Bank and more than $500 million in grants for work that includes cancer research.

In addition, oil and gas companies that have done business in Iran have over the years won lucrative drilling leases.

In recent months, a number of companies have withdrawn from Iran, because of a combination of pressure by the United States and other Western governments, campaigns by shareholders, and the difficulty of doing business with Iran’s government. And several oil and gas companies are holding off on new investment.

The Obama administration points to that record, saying that it has successfully pressed allied governments and even reached out to corporate officials to dissuade investment in Iran. In addition, a US effort over many years to persuade banks to leave the country has isolated Iran from much of the international financial system, making it more difficult to complete deals there.

“We are very aggressive, using a range of tools,’’ said Denis McDonough, chief of staff to the National Security Council.

The government can, and does, bar US companies from most types of trade with Iran, under a broad embargo that has been in place since the 1990s. But as the Times’ analysis illustrates, multiple administrations have struggled to exert US authority over companies outside the embargo’s reach - foreign companies and subsidiaries.

Indeed, of the 74 companies the Times identified as doing business with both the US government and Iran, 49 continue to do business there.

One of the government’s most powerful tools to influence the behavior of companies beyond the jurisdiction of the embargo is the Iran Sanctions Act, devised to punish foreign companies that invest more than $20 million in a year to develop Iran’s oil and gas fields. But in the 14 years since the law was passed, the government has never enforced it, in part for fear of angering allies.

That has given rise to situations like the one involving the South Korean engineering giant Daelim Industrial, which in 2007 won a $700 million contract to upgrade an Iranian oil refinery.

According to the Congressional Research Service, the deal appeared to violate the Iran Sanctions Act. But in 2009 the Army awarded the company a $111 million contract to build housing in a South Korea base.